Big Companies Forced to Rethink Their Carbon-Credit Strategies

by | Mar 31, 2023

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Net-Zero Climate Commitments. Ambitious Goals or Greenwashing?

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Many Fortune 500 companies are buying carbon credits to help them reach their net-zero targets — from Delta Airlines to Disney to Unilever. But an investigation by the Guardian news outlet is casting doubt on the credibility of voluntary carbon credits issued by Verra, the largest such group.

The Guardian concludes that more than 90% of Verra’s voluntary credits are “worthless” and that Verra exaggerates the impact of its credits by 400%.

It’s a simple proposition: governments set emissions limits, and companies that exceed them can sell credits to those unable to do so. As the boundaries become more stringent, CO2 levels fall. But such trading platforms only work when financial transparency and enforcement mechanisms exist.

“Businesses are currently trying to claim they are carbon-neutral, wasting shareholder money,” says Kevin Conrad, executive director for the Coalition for Rainforest Nations, in a discussion with this writer. “They are spending money on things not doing what shareholders would require. The money invested in credits is often not spent on climate stuff.”

If the Paris climate agreement has adopted the credits, they are safe for businesses to buy. That implies that they have been scrutinized and verified. Critically, it ensures that the rainforest nations get all the money to save their trees. Conrad says companies want only to purchase credits that fully disclose how they distribute the money. Voluntary markets, generally, lack oversight, and rainforest nations may end up getting pennies on the dollar.

Generally, companies cannot achieve carbon neutrality by generating all of their electricity using renewable energy onsite or by increasing their energy efficiency strategies. They have to enter into power-purchase agreements. And they have to buy carbon credits — things that can offset their emissions. For example, they buy credits from a rainforest nation, agreeing to save trees or refurbish their land.

Indeed, forests are carbon sinks, absorbing 7.6 billion metric tons annually. Rainforest nations need an estimated $100 billion to ensure the survival of their lands. The carbon markets will raise some of that money. But the trading system must be accredited. COP27 in Egypt enshrined Sovereign REDD+ credits into the Paris agreement, making it easier for countries to attract private financing.

“Companies will coalesce around the Paris agreement that focuses on maintaining the forests,” says Federica Bietta, managing director of the Coalition for Rainforest Nations, in an interview.. “They can’t achieve net-zero emissions with just renewables. They will be looking for the right products: Redd+ is critically important in the climate solution. The private sector needs to be educated.”

Accenture found that 34% of the world’s largest companies are now committed to carbon neutrality, but 93% won’t hit their 2030 targets unless they speed up their emissions reductions. The Carbon Disclosure Project agrees that less than 1% of companies have a “credible climate transition plan.”

Verra says the Guardian is Off Base 

Verra says that the Guardian’s research is way off, maintaining that it bases its conclusions on an extrapolation of three reports by two groups that reviewed several projects.

“Verra has certified over 1,500 carbon projects, which have been assessed tens of thousands of times by third-party auditors,” the group says. “They have delivered billions of dollars for rural areas in the global south, in support of action on climate change and biodiversity loss. This level of finance was delivered due to strong standards and methodologies, which we will continue to strengthen, in cooperation with governments, scientists, and local communities all over the world.”

While Verra is examining its methodologies and will develop a new variation by 2025, it said it is not doing this because of the Guardian’s report. It has been planning for change. “All of these decisions were made before the Guardian’s reporting, which Verra addressed separately in a statement published on 18 January, and subsequent technical review which found that the Guardian article and two of the three studies on which the article was based are patently unreliable.”

But the quality of carbon credits varies, necessitating greater transparency. How can companies buy those vehicles without fully accounting for where the money goes? Voluntary carbon credits support specific projects, although landowners get a small percentage of the corporate investment. The rest goes to intermediaries. The Wall Street Journal points to Peru, where little money went to locals, and most went to “traders, registries, raters, governments, and investors.”

For those reasons, some countries like Papua New Guinea have placed a moratorium on buying voluntary carbon credits.

The World Economic Forum and Bain & Co. surveyed 137 companies, finding that less than 20% planned to buy carbon credits. The January 2023 report says companies need “precise information” to make good decisions. However, 55% of the businesses cited a lack of transparency, 55% referenced varying carbon credit quality, and 50% noted the complex web of standards. Meantime, 40% of them worried about “reputational risks” — a public backlash about investing in iffy projects at the expense of creating operational efficiencies.

“The transparency of the market urgently needs to be improved,” says the study. “Recent reports suggest that in some cases significant shares of end-user costs do not reach the projects and communities that so acutely need financial support.”

If a company can spend millions of dollars buying carbon credits, it can afford to do the due diligence to ensure that the credits they buy have an impact. Now businesses can buy directly from the governments trying to protect the rainforest. With that, companies should ask whether the credits are Paris-compliant and precisely where the money goes.

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